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5 buyer red flags to look for during the M&A process

The global mergers and acquisitions market skyrocketed in 2021, with a total of nearly $6 trillion in deals recorded that year. The pace of deal-making slowed somewhat in 2022, but the market is again picking up steam, with large acquisitions making up 28% of total deal value last year.

Now that the M&A market seems to be back on track, it’s important for startups to be aware of the red flags to look for when they’re considering selling. After selling my first startup in 2020 during adverse economic circumstances, I found there were several things I wish I had known before I took that route.

Key ideas to remember when selling to a corporation

You’re more likely to succeed on your own

Big corporations usually consider how they can incorporate and develop a potential acquisition target within their established organization.

This isn’t inherently bad, but it’s important to remember that this often means they can (and will) change the core of your company if it suits their purposes.

You won’t be in control

When you’re acquired, it’s common for the CEO to stay on for a few years to ease the transition. However, you won’t be the real decision-maker anymore, and you might lose the ability to create.

Buyers who can’t give you a transparent picture of your company’s future after the acquisition likely do not have your best interests in mind.

You’ll be a manager under other managers who have different priorities, and you may have to watch your company go in a direction you don’t like.

Your company’s growth may not be a priority

This is a hard truth that nobody talks about: Your startup is probably just a stepping stone for scaling someone else’s business or to boost stock prices.

Public companies are rarely concerned with your company’s operating efficiency and health. Sometimes, big companies acquire small ones to eliminate competitors or because it’s cheaper than trying to hire and train a new team for a project. Unfortunately, none of this may include further development of your product.

Even if a company offers more money, it’s important to find out if they plan to simply fire your team and take the technology, or if they have concrete plans to further your brand.

Happiness is optional

Corporations are not obligated to try to make you or your team happy once you’re under their umbrella. They have their own agenda, which may or may not include giving your company the freedom to grow and improve.

This doesn’t mean those big companies will make the acquisition experience bad for you; it’s simply important to remember that there’s no requirement for them to please you, especially if it goes against their plans.

source: TechCrunch